Author: Douglas Johnson

Some analysts dismiss the ethnic attacks in Sri Lanka last week as a purely domestic affair. Globalists should be less cavalier. The tragedy is a sobering reflection on our collective failures; it also is a jarring reminder of headline-grabbing violence elsewhere in the developing world. The threats and emergencies that sprout

UiPath may not be a household name, but the company is on a torrid growth trajectory. Over the past four months, the firm claims that it has doubled its workforce to about 600 employees across 14 countries to support its software-bot business. With the additional $153 million it just raised from venture capitalists, UiPath can continue that expansion. The firm is now based in New York; it originally hailed from Bucharest.

UiPath is an important player in the robotic process automation business. The company designs software to help automate back-office operations, especially for legacy computer systems. UiPath is noteworthy because it maintains a diverse, enterprise-level client list, including BMW, Exxon, and Huawei.

The latest funding round propelled UiPath to a $1.1 billion valuation, providing entrée to the so-called unicorn club. The term “unicorn” is tech industry jargon for companies that have achieved a valuation level of at least $1 billion. That milestone is an important, albeit arbitrary, rite-of-passage for founders and early-stage investors.

Private-sector valuations are tough to pull apart. Detailed financial data is not readily available, while assumptions about commercial operations are rife. From our arms-length perspective, there are likely two pillars for the UiPath valuation:

► Hypergrowth in Revenue. The firm claims that its revenue grew eight-fold last year, following a similarly robust rate in 2016. Our concern here is that growth companies have a peculiar habit of talking about revenue, as if it is the same as profit. In a turbulent venture-capital setting, investors may quickly shift their attention to net income.

UiPath may aspire to dominate the worldwide market for robotics process automation with its muscular footprint. Outside of Europe and the US, the firm has offices in Dubai, Singapore, and Tokyo, among other cities. Yet we wonder whether the software-bot industry will evolve into a business for local service providers? UiPath may be chasing enterprise clients that will ultimately abandon them in favor of boutique companies, if not in-house development teams.

► Potential in Office Automation. The broad-based market for office-automation technology may reach as much as $50 billion over the next five years, according to Forrester, the market research company, but the software-bot component may be less than 10% of that figure. Investors appear to be buying into robotic process automation firms as an entry point for the bigger office-automation sector. Yet the overall industry may turn into a free-for-all among the biggest tech players.

The software-bot segment capitalizes on the lack of transparency among competitors. In the trenches, UiPath is going head-to-head with business-to-business brands like UK-headquartered Blue Prism and US-based Automation Anywhere. There are many other firms in an industry where, somewhat irreverently, the key barrier to entry may be the ability to hire top-notch coding talent.

Less than a year ago, UiPath was worth a modest $110 million, according to data from Pitchbook. The issue at play, in our view, is the ever-voracious appetite among investors for artificial intelligence. Gartner, the tech-oriented advisory firm, maps artificial intelligence into the initial, innovation-trigger stage of its Hype Cycle for Emerging Technologies.

UiPath is worth singling out because it is more than just another story of a potentially-distorted valuation. We are enamored by the fact that firm traces its foundation to Bucharest. Romania is not widely recognized for its startup ecosystem. In our experience, venture capitalists tend to ignore small markets because of concern over scalability in limited-size hinterlands. Some businesses—like UiPath—easily transcend those borders. Off-the-grid opportunities may deserve closer scrutiny. ■

Our Vantage Point: In Silicon Valley, a unicorn-level valuation is a metaphor for sustainability and permanence. In truth, the figure can be merely a snapshot of current investor fashion.

What do billionaires in India do with their money? The question is more practical than quaint. They can wrestle with myriad financial advisors, plow funds back into their established businesses, or go it alone, investing on a best-efforts basis in selected deals. The fast-evolving option, at least in India, may be to start a family office.

That approach to wealth management could be called pedestrian in the West. In America alone, there are as many as 5,000 family offices. Yet the landscape is different in India. The cohort of Indian billionaires is the first generation of Indians in history—outside of nobility channels—to accumulate such enormous wealth. These riches are largely tethered to domestic economic reforms that were unleashed in the 1990s.

Insiders estimate that there may now be more than 75 active family-office investors in India. That tally is somewhat less than the 100 or so billionaires in the country. The real growth in the number of family offices, however, will be propelled by those with less prominent net worth today. Credit Suisse estimates that there may be 245,000 millionaires in India. We can expect to see many of the sturdier fortunes nest in a single-family office or coalesce into multi-family offices.

Uday Kotak typifies the trend. Kotak is now setting up a family office to manage an estimated $1.2 billion. This capital was sourced from the sale of a portion of his shares in Kotak Mahindra Bank. The liquidation was forced by the Reserve Bank of India, which monitors founders’ share holdings. In context, Kotak started his bank in 1985 with a $50K loan from family and friends. Today he may be the eighth-richest person in India.

One feature of the family-office structure in India is broad family adhesion. Collective activity is derived from the traditional joint-family concept in which many generations of the same family live together in the same house. The arrangement can lead to common pooling of financial resources, with oversight by the family patriarch. These cultural traits are less evident today because of rapid economic development, but they still inform decisions in the modern workplace.

We are cautious about generalization. In India, like elsewhere, family offices have complex personalities. By way of example, we identify a handful of entities that set the tone for their peer group:

Burman Family Holdings is the private wealth arm of the Dabur Group, a leading consumer goods company. The Delhi-based firm is known to be an aggressive investor in sectors with a retail angle, including financial services, hospitality, and healthcare.

RNT Associates may be the premium name among Indian family offices. It operates from Mumbai as the investment channel for Ratan Tata, former chairman of Tata Sons. Often providing mentoring skills, Tata tends to make smaller investments across an array of internet startups.

Unilazar Ventures is the family office of Ronnie Screwvala. The Mumbai-based media entrepreneur invests broadly in the venture space, but typically outside of his core entertainment interests. The firm’s seed capital can be traced to a 2012 deal with the Walt Disney Company.

In a global context, we see two features of Indian family offices that distinguish them from those elsewhere. First, tax evasion is a headline issue in India. Firms are consequently hard-wired to their government accountabilities. Second, income disparity is staggering. The richest 1% cornered 73% of the wealth generated by the country in 2017, according to an Oxfam study. That reality can draw family offices into extensive philanthropic programs. ■

Our Vantage Point: We expect the number of family offices in India to grow rapidly over the years ahead. As a group, they are poised to become an unexpected, if not outsized, capital source on the global stage.

The bombings in the northeast city of Barranquilla at the end of January are a savage reminder of the evolving political setting in Colombia. Despite the government’s signature agreement with the Revolutionary Armed Forces of Colombia, commonly called FARC, other terrorist groups continue to operate. In this most recent incident, the National Liberation Army, known as ELN, claimed responsibility for the series of attacks, killing seven police officers and wounding dozens. Cross-border investors are unnerved by these headlines.

Isolated terrorist incidents, albeit tragic, will not derail a strong economic story. In Colombia, GDP growth could reach 2.9% this year, well above the 2.0% or so expected on average in Latin America. Recovering commodity prices are a huge boost, so too are outsized infrastructure outlays. As a testimony to this growth outlook, the Colombian central bank announced that its 25 basis point interest-rate cut at the end of January would be the last for this easing cycle.

Global investors tend to focus on headline political developments in emerging markets in ways that local investors do not. Politically-motivated violence has been a recurring backdrop in Colombia for at least two generations. FARC, for instance, was formed in 1964. The stock market was volatile after the recent Barranquilla bombings, but that actually reflected oil-related trading patterns in Ecopetrol, the largest single stock by capitalization on the Colombia Stock Exchange. The broad-based Colcap Index is otherwise up a dollar-based 11% in the year-to-date period through February 2.

Ecopetrol is the local blue-chip benchmark. Colombia ranks as a top 20 oil exporter; its capacity is similar to the United Kingdom or Azerbaijan. Ecopetrol controls a dominant portion of the domestic business, although it is not a strict monopoly. Among cross-border investors, Ecopetrol is considered a more conservative portfolio holding than Pemex and Petrobras, the Mexican and Brazilian oil giants. If the oil price continues to improve, Ecopetrol’s stock price should also be buoyant.

The real gem in Colombia, however, may be the financial services sector, representing the largest component of the domestic economy at about 20% of GDP. One reason for that largess is that the country runs a mandatory pension-contribution system. The combined market capitalization of the major bank stocks is near one-third of the total stock market, or about twice the size of Ecopetrol.

Global investors should be encouraged by the fundamental story among Colombia banks, the largest of which is Bancolombia. You can scratch the classic emerging-market stereotype of slow-to-innovate financial institutions that are dogged by government regulation. As a group, these banks are altogether different. We see two trends worth watching, both of which should propel bank stocks over time:

Asset Growth. Financial inclusion rates are low. According to the World Bank, only 39% of the Colombian population over 15 years old has a bank account. Compare that to 68% in Brazil and 63% in Chile. As the volume of bank accounts grow, the role of credit in the economy should also expand.

Financial Technology. The major Colombian banks are highly profitable, empowering them to go on a startup acquisition binge, especially among local fintech players. Average return-on-equity among the major banks is close to 15%, compared to about 10% among US banks. The ratio is lower in Europe.

The fintech angle deserves attention. Colombia has the third largest number of fintech companies in the region at 124 firms, compared to 230 in Brazil and 238 in Mexico, according to Finnovista, a venture-development consultant. Take-over expectations may be one reason why valuation levels among some Colombian startup companies are so lofty, in our view. Acquisitions by traditional banks of fintech companies could have a further impact on enterprise innovation.

The dark shadow lingering over the investment story is the May presidential election; there is also a March parliamentary vote. President Santos is constitutionally barred from running again. He is also deeply unpopular. One reason is that many feel the FARC deal is overly generous. Another is ongoing corruption scandals. A prominent case involves bribes paid by the Brazilian construction giant Odebrecht to Colombian officials.

Santos’ weak approval rating opens the door to emerging national politicians. The front runner is Sergio Fajardo, a recent governor of economically-powerful Antioquia Province, where the city of Medellin is located. Yet Fajardo is vulnerable. Provincial debt levels ballooned enormously under his leadership. The opposition is likely to paint him as a fiscal profligate. Adding texture to the race, the former FARC guerilla commander Timochenko is now set to run in the May election.

The political setting could upend interest in the stock market over the next few months, but we are still drawn to the opportunity because of the underlying growth potential. A primary focus is the robust banking sector. We are prepared to look beyond sporadic violence. Local companies can probably manage that risk better than distant analysts. ■

Our Vantage Point: Global investors may be surprised at the upside potential in Colombian equities in 2018. We expect to see most of those prospective gains in the second half of the year, after investors are more comfortable with now-uncertain election results.

The entire country of Vietnam is fast-transforming itself into the Silicon Valley of Southeast Asia. One reason is rapid economic growth; another is the youthful population. Those fundamentals are coalescing into venture anarchy as the volume of startups overwhelms the ability of the domestic ecosystem to support them. Constrained access to global capital may be a result of the poor quality of many startups, at least on a comparative basis, rather than lack of awareness by international investors.

Economy. Since 2014, Vietnam has been registering annual GDP growth at 6.0% or better, making it one of the best stories worldwide. The IMF expects that rate to continue through 2020. One key factor has been the government’s ability to attract foreign direct investment, especially in manufacturing.

Demographics. The population of Vietnam is close to 95 million, ranking it slightly smaller than the Philippines. The key metric is age structure: about 40% of the population is under 25 years old. The average age is near 30, some 10-to-15 years lower than in most developed nations.

That dynamism is leading to a surge in startup activity, at least in the headlines. Some prominent firms here have been built by the Vietnamese diaspora. Yet, many startups are founded by university graduates who cannot get jobs in established corporations. By one estimate, Vietnam is currently generating about 100,000 engineering graduates yearly, consistent with the figure for France and about 40% the number in the United States. Most of these aspiring executives lack the experience to run a successful company.

The government is actively supporting policies to turn Vietnam into a “Startup Nation” by 2020. The target is to have as many as one million firms registered as startups over the years ahead, supported by tax incentives and public-sector incubators. That buzz is infectious. But we are not sure that an economy now about the size of Pennsylvania needs that many tiny firms fighting over defined market share.

Vending sandwiches on the streets is not a startup. But selling sandwiches via smartphone apps is a startup.

Do Duc KhaDeputy Head, Vietnam Institute for Entrepreneur Training and Development

On an up note, two major events in 2017 affirmed that select Vietnamese startups can compete for global capital. These developments injected even more life into the Vietnamese technology sector:

Public Listing. VNG announced its intention to list its equity on NASDAQ, although it may take a year or two before we actually see the IPO. The Ho Chi Minh City-based unicorn is active in gaming, social media, and mobile services.

Acquisition. Singapore-headquartered Sea bought an 82% interest in Foody. The Vietnamese firm runs a meal-booking and food-delivery service. The estimated value of the transaction was about $64 million. Sea is a NYSE-listed company.

Among investors, the case for Vietnamese startups may resonate best with those who have an affinity interest in the market. Key opportunities tend to be locally-adapted approaches to business models known elsewhere. Chinese billionaire Jack Ma highlighted the potential here with Alibaba’s investment in regional e-commerce firm Lazada and local payment processor Napas. Yet investors looking for fresh developments in artificial intelligence and blockchain may want to look beyond Vietnam. ■

Our Vantage Point: Startups can play an important role in driving economic development. But they are only one component of a broader growth strategy. In Vietnam, the mix is increasingly out-of-balance.

Tourism has never been a priority in Saudi Arabia, ostensibly because of visitors’ lack of sensitivity to local customs. Peripatetic businessmen are one thing; individual or group travelers wandering about the country are quite another. Better to focus government energies on Muslim arrivals at Jeddah, en route to Mecca and Medina.

All that is about to tilt differently. Prince Khalid Al-Faisal, Governor of Mecca Province, contends: “Tourism is our white oil.” The sector is an important catalyst in Riyadh’s Saudi Vision 2030 master plan.

As part of its diversification from an oil-based economy, Saudi Arabia will announce standards for tourist visas by the end of March. Official statements indicate that tourist visas will be tied to Umrah, a religious pilgrimage that can be undertaken at any time of the year. That constraint limits the universe of applicants to those Muslims who otherwise have access to the country. Informal conversations suggest that the move is a stepping stone to marketing the nation more broadly as a vacation destination.

Official tourist-visa guidelines are overdue, amid speculation on the forthcoming framework. There was a rumor in circulation earlier this month that Saudi Arabia would allow single women travelers to enter the country. The report proved to be only partially correct. Those under 25 years old will still be required to have a male chaperone.

Foreigners of course will be drawn to Saudi Arabia. Expect to see a new wave of Red Sea resorts built to accommodate the influx, as well as a surge in environmental travel to sites like the Al Wahab Crater. The crown jewel of Saudi Arabian tourism, at least from an archaeological perspective, may be Mada’in Saleh, an ancient Nabatean city tucked away in the western desert. Think Petra before Indiana Jones.

The government wants to bring 30 million Umrah-based visitors a year to the Kingdom, representing about a 275% increase over current levels in a 12-year period. For context, that future number is about the same as now seen by Thailand. The Saudi Commission for Tourism and National Heritage might reach that figure. Or not. It took Thailand about 20 years to achieve its level from a similar base, yet with a truly global market for its hospitality sector.

Authorities have their work cut out for them. The draw of Dubai is inescapable among local and regional tourists; while the lure of Egypt dominates international travel agendas. Saudi officials will not budge on the country’s strict no-alcohol policies, given the proximity of many tourist venues to Mecca and Medina. There are staffing and training challenges. The key may be Saudi Arabia’s ability to promote itself among non-Arab visitors, including the middle classes of Indonesia, Nigeria, and Pakistan. ■

Our Vantage Point: Growth in the Saudi tourism is likely to pace at a moderate speed. While we are wary of unbridled fanfare, industry momentum could offer sustained benefits for cross-border investors.

Zoobia Shahnaz is a name that you may read about again. In December 2017, she was arrested in New York on a string of terrorist-finance charges. The federal indictment clarifies that she purchased Bitcoin with fraudulently obtained credit cards, wiring the proceeds to ISIS-related groups in Pakistan. The case spotlights a hole in the global financial system that authorities worldwide would like to plug.

Yet identifying a hole in the global financial system is different from uncovering a trend. Objectively, the debate over cryptocurrencies supporting terrorism may be one-sided. Existing evidence is anecdotal; examples are isolated; talk is speculative. Terrorists, awkwardly, already have many well-established channels to fund their work.

The London-based Royal United Services Institute, an established think tank on security affairs, argues against random and arbitrary policy moves. In a March 2017 commentary, it emphasized: “Treating cryptocurrencies as an exceptional threat creates the misleading impression that more conventional financial products are not already equally, or more, vulnerable to terrorist exploitation.”

Some degree of measured response is appropriate. Most early-stage regulations are focused on know-your-client and volume-reporting standards:

United States. Bitcoin exchanges are required to document the beneficial owners of their accounts using new customer due-diligence criteria. We expect to see headlines tied to government enforcement of these rules after the May 2018 deadline. In that context, about 100 firms have now registered with the Treasury Department’s Financial Crimes Enforcement Network as money transmitters.

European Union. Germany and France have called for G-20 involvement in cryptocurrency regulation, placing it on the agenda for the March 2018 meeting of the group’s finance ministers. The approach avoids piecemeal oversight on a nation-by-nation basis, affording consistency in the borderless world of cryptocurrencies. Regardless, the EU will likely adopt a compliance model similar to the United States.

Emerging Markets. Industry news from the United Arab Emirates suggests that commercial banks are delaying some customer-initiated transfers to cryptocurrency exchanges. Malaysia published draft guidelines for the industry in December. Fear of being locked out of US dollar clearing capabilities is likely to drive hardened rules across the developing world.

Regulations are often problematic because most countries do not recognize cryptocurrencies as legal tender. That acknowledgement, at least philosophically, would upend the notion that countries have a sovereign right to control their money supply. Still another issue is that policymakers do not understand the asset class, viewing it with prejudice. Fortunately, recent expansion in the cryptocurrency market is alerting them to positive features of business, such as financial inclusion, despite near-term concerns over price volatility.

There are some nations that may be in a bigger hurry to implement far-reaching rules than others. Indonesia, for instance, has been an outspoken critic of cryptocurrencies. It bans their use by those fintech companies tied to payment systems. One reason is that Bahrul Naim, a Syria-based Indonesian, likely funded terrorist activities in his home country through Bitcoin. He is considered the mastermind behind the January 2016 attack that killed seven in central Jakarta. ■

Our Vantage Point: Pushing through capricious cryptocurrency regulation may inadvertently squelch the development of the fintech marketplace, while distracting authorities from monitoring more prominent terrorist-finance channels.

The sky was the limit. According to the China Cruise & Yacht Industry Association, the number of cruises from Chinese home ports grew from 28 in 2008 to 927 in 2016. As recently as May 2017, Bloomberg ran an article entitled, “Cruises Boom as Millions of Chinese Take to the Seas.” That outlook is now being re-written.

The trade bulletin Cruise Industry News estimates that cruise traffic in China will fall from 2.8 million passengers in 2017 to 2.4 million in 2018, representing a 15% decline. The figure is likely to be conservative. Wealth trends are rapidly favoring independent itineraries over group arrangements.

As a sign of failed optimism, Royal Caribbean is withdrawing ships from the Chinese market, while Carnival is rethinking its China-built ship orders. Norwegian, the other mega-player, just announced a broad management reshuffle for its Shanghai- and Beijing-based operations. The impact on local operators is opaque.

What went wrong so quickly? The industry misjudged its risks, failing to decouple the cruise business from impressive growth trends in the overall tourism sector. Consider these points:

Political Risk. In March 2017, China issued a ban on cruise travel to South Korea to protest the installation of a US THAAD missile system. Ports of call included Busan, Jeju, and Seoul. The ban knocked out prime destinations, realistically leaving Hong Kong and Japan as the other short-haul options.

Business Risk. Cruises lines are prohibited from selling tickets directly to the consumer in China. They are required to use an ever-powerful cabal of online travel agents—key names include Ctrip and Qunar—further depressing tight profit margins. Tickets are sold to these distributors in bulk.

But the overriding issue may be how swiftly travel preferences have evolved. Where the Chinese market was once characterized by standardized group travel offerings, consumers are now drawn to tailored, personal experiences. The cruise industry missed that shift, relying on generalized penchants for gambling and shopping. ■

Our Vantage Point: Investors based in the West tend to parrot the idea that an expanding middle class in emerging markets will drive investment opportunities. In practice, that concept overlooks the local character of many consumer-based industries.

Headlines are one reason cybersecurity is trending among venture capitalists. The Equifax and Uber hacks, among others, are de facto marketing campaigns for the industry. Ransomware headaches like Bad Rabbit and WannaCry remain prominent. At the local level, hackers continue to be lured to school districts and hospitals.

In 2017, investors poured some $7.6 billion into cybersecurity startups, across 548 deals, according to data from CB Insights. That is a 100% increase in value over the previous year. While momentum may subside, investors will likely remain spellbound by the industry.

Cybersecurity firms are not household names. Prominent publicly-traded players can be found in the constituency lists of focused ETFs like HACK and CIBR. Over the past year, Pitchbook identified two privately-held firms with unusually large funding rounds: Rubrik at $180 million and Illumio at $125 million. Both of these California-based companies appear to be valued at more than $1 billion each.

What macro-trends will continue to propel the industry over the year ahead? Intensified activity by state-sponsored actors is a given, but more nuanced points include:

National Regulation. The European Community is leading the way with its Global Data Protection Regulation. The law will come in force in May, levying heavy fines on companies for inferior data management practices. GDPR may quickly become the gold standard among countries worldwide.

Public Relations. Companies will become more astute at managing hacks promptly with customers and constituents. Case experience, such as the fumbling at Yahoo, is guiding development of ready-to-go crisis management strategies by in-house teams and outside consultants.

System Maintenance. Patching and updating is an obvious, low-cost measure to prevent cyberattacks, but the practice remains weak among businesses, especially smaller ones. Executives who are hesitant to roll-out pricey defense programs may latch onto lower cost maintenance activity.

Our best guess on a red herring influencing the industry outlook is artificial intelligence and machine learning. Quickly isolating attacks with next-generation technology sounds like a sure win for investors. But black hats can use the same capabilities to infiltrate government and commercial systems. Pavlovian-like reliance on artificial intelligence and machine learning could mean that some breaches are missed altogether. ■

Our Vantage Point: Expect macro-trends to further amplify the cybersecurity business. Heightened national regulation and elevated system maintenance, in particular, are likely to sustain revenue potential for industry players.

While borrowing for investment purposes is hardly controversial, it can quickly become so when the bank loan represents a lien on state assets. And the borrower is Saudi Arabia. News leaked over recent days that the Kingdom’s Public Investment Fund may draw down as much as $5 billion in a bank loan to accelerate the nation’s steps toward economic diversification.

This approach to building an asset portfolio is aggressive for a sovereign fund based in an emerging market. We see three potential problems:

Investment Risk. The Public Investment Fund is an established institutional investor with deep experience in venture investing. But return expectations can shift suddenly and deals go sour quickly. There is a material difference between borrowing for open-pool allocation decisions and, say, issuing a bond to cover a project outlay, starting with transparency in the use of proceeds.

Market Risk. Saudi Arabia is undergoing a dramatic economic transformation. The outcome is unknown, although officials are unwavering in enthusiasm over catapulting the nation beyond the oil era. Mix that reality with regional political unrest—especially in the volatility of the feud between Riyadh and Tehran—and you could see international confidence in the region falter rapidly.

Political Risk. While Saudi Arabia does not have a strict Shariah-compliant financial system, many institutions embrace tenets of Islamic finance. In this context, simply stated, borrowing for investment purposes is prohibited. Fundamentalist religious leaders could bundle this leveraging activity and other transactions with still-controversial social reforms to paint a picture of a reckless government.

To be fair, details of the bank loan are scant. It lingers in the concept stage. The government, although not the sovereign fund, has borrowed from financial institutions in the past without much controversy. In the current setting, Riyadh may guide a syndicate of players to participate in the arrangement as a type of milestone to affirm market-access privileges in the future.

A bank loan at $5 billion is chunky, but it has context. The still-unconfirmed Saudi borrowing represents a small proportion of the crudely-estimated $230 billion in assets now held by the Public Investment Fund. Importantly, the sovereign fund could be a prime beneficiary of the forthcoming initial public offering of Saudi Aramco, boosting its asset base significantly. ■

Private wealth in Africa continues to gain momentum. According to Forbes, there are now 23 billionaires on the continent. Eight of them reside in South Africa, six in Egypt. The overall number increased by two over the course of 2017. In context, the number of billionaires in Africa is consistent with the number who live in Paris. Forbes estimates that there are over 2,000 billionaires worldwide.

Richest Individual. The wealthiest man in Africa is Aliko Dangote (est. $12.2 billion). His considerable fortune is derived from cement, food processing, and real estate. The Dangote Group runs its operations from Nigeria, but interests stretch throughout West Africa. He is an ethnic Muslim.

New Addition. An interesting newcomer to the list this year is Strive Masiyiwa (est. $1.7 billion). The native Zimbabwean controls Johannesburg-based EcoNet Group. Its subsidiaries include firms in the telecommunications and banking industries. Masiyiwa is active in philanthropic circles worldwide.

Wealthiest Woman. The richest woman in Africa is Angola-based Isabel dos Santos (est. $2.7 billion). Her fortune was largely sourced from her father, José Eduardo dos Santos, the Angolan president between 1979-2017. Known locally as “the princess,” she once ran Sonangol, the flagship conglomerate.

President Trump may want to spend more time befriending his billionaire colleagues in Africa once he leaves office. Assuming that his net worth is valued at near $3.1 billion, he would now rank somewhere between Naguib Sawiris (Egypt) and Koos Bekker (South Africa) on the African list, effectively making him the seventh wealthiest person on the continent by current estimates. Among American tycoons, he ranks only at 248th place, tied with 15 other US billionaires, according to October 2017 data compiled by Forbes. ■

Our Vantage Point: Like elsewhere, emerging markets in Africa are generating pools of private wealth that are seeping into capital markets. Cliché-ridden views are out-of-place in this increasingly buoyant region.

The White House appears to be making a major shift in its infrastructure approach, somewhat unexpectedly. Rather than roll out infrastructure improvements through public-private partnerships, the president seems prepared to think in terms of outright fiscal expenditure. Details remain sketchy.

That tone should satisfy key Democrats who have been critical of over-emphasizing private-sector cash because of concerns over the widespread impact of user fees. Never mind the fact that some major states would balk at any infrastructure-related federal matching requirements. New Jersey and Illinois, for instance, have some of the lowest state credit ratings in the country.

At its core, infrastructure is a bipartisan issue. Insiders are hopeful that common ground can be found this year for a package that may total at least $200 billion in federal funds. The amount could be much larger by the time Congress repackages any White House proposal. But can the federal government afford such investment? Some economists argue that the just-passed tax bill already causes undue budget pressure over the years ahead.

There are also latent concerns about over-stimulating the economy. With a solid growth trajectory now in place, do policymakers run the risk of cyclical overheating if they dump too much money into the economy too fast? Any plan would presumably have to pace infrastructure outlays over time. Some analysts argue that the government may want to withhold certain investment as an antidote to potentially-weak economic activity in the future.

A brewing issue is one of perception. The Trump administration, which has only offered sweeping generalizations about how it defines infrastructure, is likely to be thinking in terms of outsized greenfield projects. But the real need may be maintaining and improving existing structures, given the age of the nation’s roads and bridges, among other elements of the infrastructure mix. Repairing and managing what we have may be much cheaper and more effective than new construction.

Regardless of what a bipartisan agreement looks like, we should brace for the overt politicalization of any infrastructure bill. Comments by President Trump in January 2018 at the American Farm Bureau Annual Convention in Nashville are a prelude to future rhetoric. He claimed, “We are proposing infrastructure reforms to ensure that our rural communities have access to the best roadways, railways, and waterways anywhere in the world. And that’s what’s happening. We’re going to be spending the necessary funds, and we’re going to get you taken care of. It’s about time.” ■

Our Vantage Point: Infrastructure may be a bipartisan issue, but we will see months of political wrangling on Capital Hill. The shift away from outsized private-sector funding acknowledges the low-return nature of many infrastructure projects.

Marriott usually excels in diplomacy. It has hotel properties in more than 120 countries and territories. However, the worldview held by one corner of its marketing department has landed the firm in hot water. Chinese authorities shuttered its local website, albeit only for a week, over an online survey. On the form, Marriott listed Tibet, Taiwan, Hong Kong, and Macau as separate countries.

Nationalist sentiment seems to have overwhelmed Marriott’s attempt at damage control, given the degree of public shaming on Weibo, a Chinese-language service similar to Twitter. Market regulators have opened an investigation into suspected violations of cybersecurity and advertisement laws. Marriott’s chief executive, Arne Sorenson, rallied with an apology: “We don’t support anyone who subverts the sovereignty and territorial integrity of China and we do not intend in any way to encourage or incite any such people or groups.”

Marriott is not alone in this mistake. Coca-Cola, Burberry, and Apple, among others, have stumbled in the treacherous terrain of Chinese sovereignty. Other multinationals may repeat the error in the future. The interesting twist in the Marriott case is the degree of outcry over social-media channels. That sort of groundswell will ultimately impact the bottom line more than a traditional reprimand from public officials. ■

Our Vantage Point: When operating in emerging markets, multinationals sometimes forget that routine effort can become an act of lèse-majesté. One reason is that developing-world nations are unusually sensitive about Western perceptions of their countries.

Kodak declared this week that it was getting into the cryptocurrency and blockchain business. The announcement was thin on details and big on splash, suggesting that the investor relations staff was far ahead of the corporate strategy team. The move is a daring one for the Rochester, New York-based company. Its total miss of the digital-photography revolution was probably one of the great corporate blunders of all time. Apparently, its current management is dead set on reversing that legacy.

Investors gorged themselves on the move. Kodak stock closed at $10.70 after the announcement, representing a more than 300% gain over its previous value. The frenzy suggests that some investors have gone off the rails. Implementation of a blockchain-based photographer rights platform is unproven; the company is merely licensing its name to another firm to develop it. And the use of soon-to-be minted KodakCoin to pay for those usage rights seems to be a stretch, when traditional payment mechanisms or broadly-accepted cryptocurrencies would suffice.

The parody-like development appears to be an act of desperation for the faltered company. Jeff Clarke, Kodak’s chief executive officer, was a c-suite executive with Compaq at the peak of the dot-com bubble in 2000. His high-risk fintech strategy is informed by those dizzying years in which investors shoveled money at internet-related firms. What he may not recall is that those companies that survived the dot-com crash were largely those that eschewed hype and micro-managed their profit margins. ■

Our Vantage Point: Issuers and investors seem to be drinking the same potion, as they maneuver to exploit the crypto-craze. A likely meltdown in the market will set back fintech innovation by many years.

Currency traders may have a dull year in 2018, with the US dollar seeing sluggish movement. Optimists anticipate that rate hikes by the Federal Reserve will buoy the currency. That information, however, appears to have already been digested by the market. And developments surrounding the Trump administration are likely to cast a pall over any latent demand for the greenback.

Many currency specialists missed the downside in the US dollar last year. Indices that measure activity against the major currencies saw a decline of about 10% in 2017, delivering the worst annual return since 2003. One key reason is that attention shifted to Europe, where domestic demand led to unanticipated strong activity. According to the IMF, real GDP estimates for the European Union will moderate from 2.4% in 2017 to 2.1% in 2018, but there may continue to be healthy growth revisions.

The relatively weak US dollar is good news for equity investors. US corporates will continue to benefit from ongoing pricing power in global markets. That benefit will be mirrored in those emerging markets where currencies closely track the US dollar, such as those in Asia.

We do not see an impact on bond markets over the year ahead. US inflation remains persistently low because of globalization; currency weakness will not change that reality. Most interest-rate pundits expect the Federal Reserve to roll out tighter policy in a predictable manner, although there is lingering debate on the number of rate increases to be seen in 2018.

We are puzzled by the argument that US tax reform will drive currency strength. Some cash will make its way back to America, as US corporates consider the benefits of earnings repatriation. The tax on overseas income is now reduced from 35% to 15.5%. But most of that offshore capital is already banked in US dollars. At best, the repatriation argument could impact economic growth, leading to more enthusiasm for domestic opportunities, but the tax measure is not a tax holiday. Repatriation moves are likely to be drawn out over time.

The medium-term outlook for the US dollar is even more murky. The currency may turn volatile over a two-to-four year span as investors fret over federal borrowing and political vagary. Those issues may drive foreign investors exposed to US assets to liquidate their historically-high positions.

Perhaps the most interesting aspect of US dollar analysis right now is academic. Can Bitcoin and other cryptocurrencies take the shine off the currency as a reserve unit? While it is easy to discount moves in these assets as faddish, we look beyond now-thin activity to see if a larger trend evolves. Momentum could be driven by a greater willingness in the developing world to use cryptocurrencies as a replacement for national fiat currencies. ■

Our Vantage Point: Those searching for prominent investment ideals should look beyond the US dollar, at least over the year ahead. Aside from a meltdown in Washington politics, there appear to be few currency-market surprises on the horizon.

Populism may sustain stock prices on the Istanbul stock exchange, despite the 45% gain in US dollar terms since the beginning of the year. Our logic is tethered to the view that President Erdogan is looking for a decisive victory in the November 2019 election. That vote seems like a distant prospect. The campaign, however, will inform ongoing fiscal stimulus, regardless of any attendant economic imbalances. Skeptics should take a closer look at Erdogan’s speech this week in the eastern Turkish city of Mus, commemorating the anniversary of the Battle of Manzikert. The victory of the Seljuks over the Byzantines in 1071 paved the way for Muslim control over Anatolia. The speech was both populist fodder and a dramatic reminder of Erdogan’s nationalist agenda. Granted, economists may fret over domestic inflation figures, which in turn could lead to tighter monetary policy. But investors are likely to overlook those fundamentals in favor of a measured growth trajectory. One reason for that stance is the lackluster setting on other regional bourses, including the UAE, Egypt, and Saudi Arabia. ■

Our Vantage Point: We acknowledge that Turkish equities appear to be overbought. But our worst-case scenario calls for consolidation, rather than outright correction.

The intersection between cybersecurity and medical technology is the pacemaker, at least this week. The Food and Drug Administration has forced NYSE-traded Abbott Laboratories to recall some 465,000 pacemakers due to software vulnerabilities. It seems that the black hat across town could actually change a heartbeat. The news is not a windfall for hospitals; a programming patch can be installed wirelessly at a cardiologist’s office. But the headline emphasizes a new area of technology-based business risks. Abbott just acquired its pacemaker business from St. Jude Medical for some $25 billion. The liability could be extreme in the case of hacked pacemakers, never mind the direct and indirect costs of the outsized, if not embarrassing recall. Board members and shareholders alike may be asking uncomfortable questions about what the firm discovered—or chose to ignore—in conducting due diligence on the transaction. Perhaps Abbott should have paid closer attention to its white-hat allies. The health-care giant responded obliquely this week by asserting, “We are resolving all old St. Jude medical issues.” ■

Our Vantage Point: Due diligence once centered on governance and profit analysis. Executives ignored cybersecurity, in part because they did not understand it. They now do so at their peril.

Airlines are getting serious about robots. Think ticketing kiosks on wheels, turbocharged with Siri. Air New Zealand just finished a test that involved using a robot to check-in passengers. The flag carrier is not the first to use robots to revamp customer service. There have been similar experiments in Seattle and Amsterdam. Eva Air uses them routinely in Taiwan. The idea is to help airlines manage the ebb-and-flow of flight schedules and the chaos of flight disruptions. Robots are programmed to issue boarding passes, answer flight questions, and provide gate directions, among other tasks. The story, however, may be less about tech-based investment and more about airline cost savings. Replacing customer-service agents with robots has allure for airlines, given the replicable and predictable nature of many requirements. But the use of robots may decimate any lingering pretense of brand loyalty among consumers, at least with economy-class passengers. The day is nigh when only premium ticket holders will have ready access to traditional ground staff. ■

Our Vantage Point: Robots provide a further opportunity for airlines to cut costs, er, manage passenger-related operations. But we are not sure how their widespread adoption will grow corporate revenue.

China is now a less hospitable destination, at least for certain dealmakers. Ernst & Young estimates that Chinese outbound investment is set to reach $100 billion in 2017, representing a sharp decline from the $183 billion seen last year. Beijing blames this decline in part on growing hostility toward Chinese firms in the US and Europe. There is some truth to that point. The bigger issue is that officials are resolved to mitigate the volume of leveraged deals and address attendant imbalances in the domestic economy. Earlier this month, regulators outlined new rules on outbound investment. They specifically targeted excesses in property, film, entertainment, and sports, while advocated investment in infrastructure, oil and mining, agriculture, and technology. This policy clarification streamlines the deal-making process in favor of traditional industries, if not lower risk alternatives. But the macroeconomic context suggests that Chinese investors are likely to move forward at a far more measured pace than in the past. ■

Our Vantage Point: China remains a dominant player in cross-border investments worldwide. But the integrity of the domestic finance sector is a primary concern, given the muted outlook for economic growth.

Vietnam-based Vietjet is no ordinary airline. It has carved out consumer awareness of its brand by featuring bikini-clad flight attendants. The gimmick has worked for its female founder; Nguyen Thi Phuong Thao became a billionaire after the airline’s initial public offering in February. But minimalist uniforms are not export-friendly, at least to the Islamic world. In tandem with growing Vietnamese-Indonesian ties, Jakarta airport authorities looked for assurances that bikini-clad flight attendants will stay grounded on Vietjet’s soon-to-launch Ho Chi Minh City-Jakarta route. Vietjet obliged—and announced it will include halal meals in the service mix. While the lesson may be deference to cultural values, it is also one in business strategy. Vietnam is chasing Indonesia to propel its torrid growth rate of 6%-to-7%. Tourism is a key component in the mix. According to Mastercard, outbound Indonesian travel is one of the fastest growing hospitality segments in Asia, with outbound trips set to grow by almost 9% a year over each of the next few years. ■

Our Vantage Point: Wealth generation trends in the Islamic world offer enormous profit potential to multinationals. But the character of that business needs to side with conservative halal lifestyles.

There may not be enough tech metals worldwide to meet soaring demand. In most cases, mobile phones and solar panels are produced with lithium or indium. Other essential metals for tech-related industries include cobalt and lanthanum; the list is perplexing. The problem is that most of these resources do not trade freely in liquid markets. Rather, they are controlled narrowly by government or commercial interests. Even China—a dominant player in this corner of the commodities business—has resorted to deep-sea mining to meet demand. Does that mean investors should jump at the next neodymium deal? There is merit to diversification. Tech-metal opportunities are red-hot at this time, but tech manufacturers are looking hard at production alternatives. And supply metrics can change abruptly. Consider that aluminum was more valuable than gold throughout the 1800s. Then prices collapsed, as supply soared, when aluminum foil came into common use. ■

Many nations have citizenship-by-investment policies to entice deep pockets, but Caribbean nations have been under fire for their relatively low hurdles. The tiny island of Dominica, for example, offers its passport to globetrotters for $100,000. While these policies have been a cash drop for smaller economies, Western governments have been less enamored by their propensity, at least in theory, to attract tax cheats and terrorists. Canada just made headlines by terminating visa-free travel from Antigua and Barbuda, requiring nationals to apply for their visas through a regional embassy in Trinidad. The lawyer-dominated citizenship-by-investment industry is likely to dismiss the Canadian decision as caprice, but high-net-worth investors should be less cavalier. Shifting geopolitical sentiment suggests that a so-called “golden passport” may be a less prominent reason to allocate funds to the Caribbean. The good news is that the return-on-investment on many projects in the region justifies the allocation risk, regardless of citizenship dividends. ■

Our Vantage Point: Investors based in the developing world should focus their Caribbean deal activity on project due diligence, rather than potentially-mutable passport benefits.

Currency-depreciation rumors are playing out in Pakistan, with the rupee tumbling over 3.0% in mid-week trading. The realignment is provoked, at least fundamentally, by a deteriorating external account. But it is exacerbated by faltering confidence in the government. Prime Minister Sharif is under investigation for money-laundering allegations. There is good news behind the veil of volatility. Prior to this week, the IMF targeted economic growth at 5.0% in 2017 and 5.2% in 2018. A weaker rupee could bolster that momentum, given a lively export sector, although the impact of higher local interest rates is unclear. We suggest that cross-border investors actually sharpen their focus on Pakistan. Foreign-exchange shocks often depress private- and public-sector valuations; they can lead to outsized discounts. We acknowledge that a perpetual obstacle to deal-making here is ad hoc headline analysis. A cover story from The Atlantic in December 2011 lingers vividly: “The Ally From Hell: What to Do About Pakistan.” There are other examples. In this market, the risk tolerant are best served by maneuvering to the front of the economic cycle, rather than centering attention on international affairs. ■

Our Vantage Point: In Pakistan, like other emerging markets, asset volatility can be unnerving. But that skittishness may cultivate widespread opportunity.

Meet Our Founder

Cranganore was built to provide entrepreneurs and allocators with a better choice for handcrafted requirements than offered by the largest Wall Street firms. The company traces its roots to Manhattan, but it migrated to Miami in 2015.

Go to LinkedIn. Our managing director is Douglas Johnson, a career-long industry veteran. Between meetings in London and Tokyo, he can be found in the cafes of Istanbul or Kolkata.

Explore his blog. In an interview, Douglas was asked about changes in the financial-services industry since the credit crisis: "Investment projects now demand the strength of an ironsmith because of the challenges faced by the global economy."

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We Align Risk

We devote our energies to a select group of high-quality deals, often in association with regulated financial institutions. Background on these transactions is available to qualified names in consultation with executive management.

Access our deal book. We engage family offices, corporate investors, and private foundations. In some cases, discussions about specific deals may be conducted in tandem wtih a licensed securities affiliate in your home jurisdiction.